Insight is Foresight Series: Don’t sign that lease…yet

Insight is Foresight Series: Don’t sign that lease…yet

Are you ready to hang out your shingle with a new business? One of the first steps is finding your ideal space and location. That process alone can take months to navigate. Then there is the challenge of negotiating a lease. Because the lease process can take weeks and deals can still fall apart, we often hear “We’re working through the lease and don’t need an architect yet. We’ll call you when we get the keys.” It’s actually at this stage that we can provide incredible value and sometimes save you a lot of money, not to mention headaches, before drawing a single line.

We don’t manage the legalese or financial terms of a lease. Those are best handled by your broker and lawyer. (And you have a broker and a lawyer…right?!) But in most leases, there are terms that directly affect design, construction, and budget – and you wouldn’t realize it without someone knowledgeable to help review it. Here is a list of questions we recently sent a client who had never dealt with a formal lease before. It’s by no means comprehensive, but it certainly gave him food for thought:

1. In what condition are you taking the space and do you know the difference between the terms? As Is? Warm vanilla shell? Cold gray shell?

2. What is the size of the space? Does the lease area equal the actual square footage of the space or does it also include some common area space or factor?

3. What type of utilities are the landlord providing and are any of them particularly important to you? Electrical service size, amount of heating and cooling (in tons), minimum waterline size, is there gas available?

4. Is the landlord bringing power, water, sewer, and HVAC into the space or do you have to do that? (This item alone can add thousands or tens of thousands of dollars to your build-out cost.)

5. Are there bathrooms provided by the landlord? Are they existing or new? If existing, do they meet code? If new, are they providing you with just single user bathrooms or enough fixtures to meet code for your use? (This is a commonly a tricky one for breweries.)

6. Are there limitations on any changes you might need to make to the exterior? New windows, a new door, finishes, awnings, signage, etc. Is there a submittal or approval process for that with the landlord?

7. Are you required to use a particular contractor or are there consultants or subcontractors you are required to use? (this usually applies to roofing, alarms, sprinkler, etc.)

8. Are there minimum signage requirements by the landlord or city? Signs can be pricey if you aren’t expecting the cost ($10,000-20,000 easily).

9. Is there a tenant improvement allowance? If so, how much, and are there limits as to what you can use it on?

10. If there is a T.I. allowance, what happens to any extra amount you may not need? Do you get credit towards rent?

11. Are you negotiating for any abated/free rent to allow for design, building department review and approval, and construction? When does it start? At the time of lease signing (and during construction) or once you move in (after construction)?

12. Is the landlord completing any work in the space before you take possession, and if so, when will it be complete? What ramifications are there (either legal or to your schedule) if they don’t meet that delivery date?

13. Has the landlord dedicated any parking for your use? If so, how is it described/enumerated? Is it adequate for your use?

14. Are the existing/neighboring tenants compatible with your use? Are you excluded from selling anything (like coffee)? Or could you be negatively impacted if a particular tenant type moved in next door?

15. Are there any finishes that are NOT allowed? (concrete floors, drop ceilings, etc.)

Not all of these apply to your situation, but it’s highly likely at least a few of them do. Being aware of them up front allows you to either negotiate them into your deal, or account for them in your budget and schedule. And that knowledge alone can sometimes offset more than our entire fee in cost savings.